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Rating Action:

Moody's assigns Ba1 ratings to Olin's proposed notes and credit facilities

11 Jul 2019

New York, July 11, 2019 -- Moody's Investors Service ("Moody's") assigned Ba1 ratings to Olin Corporation's ("Olin") proposed senior unsecured notes and delayed draw term loan. The outlook is unchanged at stable.

Olin plans to: (i) issue $750 million of senior unsecured notes; (ii) establish a $1.2 billion delayed draw term loan; and (iii) expand the size of the company's revolving credit facility to $800 million from $600 million today. Proceeds from the proposed $750 million senior unsecured notes will be used to take out term debt and borrowings under an accounts receivables securitization, as well as pay fees and expenses and fund general corporate purposes. Proceeds from the proposed $1.2 billion delayed draw term loan would be used to call approximately $1.2 billion of senior unsecured notes callable in October 2020 and fund a $450-$500 million payment to Dow Chemical Company (The) ("Dow") in 2020. The expanded revolving credit facility will provide additional liquidity cushion. Taken together, the proposed transaction eliminates capital markets risk related to the upcoming calls, extends debt maturities, and improves liquidity. But it will push out the timeline for debt reduction into early 2021.

"Olin is taking advantage of favorable market conditions to pre-fund the call of expensive debt in late 2020," said Ben Nelson, Moody's Vice President -- Senior Credit Officer and lead analyst for Olin Corporation.

Assignments:

..Issuer: Olin Corporation

....Senior Unsecured Delayed Draw Term Loan, Assigned Ba1 (LGD4)

....Senior Unsecured Revolving Credit Facility, Assigned Ba1 (LGD4)

....Senior Unsecured Regular Bond/Debenture, Assigned Ba1 (LGD4)

RATINGS RATIONALE

The Ba1 Corporate Family Rating ("CFR") balances a business profile that could support investment-grade ratings in the medium term with a leveraged balance sheet that in our view would not support investment-grade credit metrics on a through-the-cycle basis, including adjusted financial leverage below 4 times (Debt/EBITDA) in a cyclical trough. Moody's estimates adjusted financial leverage near 3 times and retained cash flow-to-debt near 24% (RCF/Debt) for the twelve months ended 31 March 2019. The proposed financing will increase debt by about $100 million, compared to balance sheet debt of $3.25 billion at 31 March 2019, and very modestly erodes gross debt metrics on a pro forma basis, but a positive medium-term thesis for the chlor-alkali industry, combined with some growth in the company's chlorine-based derivatives business and anticipated reduction in debt service costs starting in 2021, should support continued improvement in credit metrics over the next 18-24 months. However, Moody's believes that the chlor-alkali industry is cyclical and any potential upside to the rating will be dictated by management's stated financial policies with regard to target leverage over the cycle and observed actions with regard to free cash flow generation and debt reduction. The rating is constrained by exposure to cyclical industries, expectation for substantive weakening in credit metrics during cyclical downturns, and longer-term risks associated with ESG-related factors.

Moody's continues to expect that Olin will generate at least $1 billion of EBITDA in 2019. Caustic soda prices declined over the past few quarters, which contributed to a weak first half for Olin, until multiple operational events in Brazil created better export opportunities for producers on the U.S. Gulf Coast, helped stabilize pricing, and set the stage for price increases in the summer. Moody's expects that Olin will start to benefit from these favorable developments in the second half of 2019 and the longer-term favorable commodity thesis for the chlor-alkali chain remains intact with no meaningful new capacity on the horizon and continued economic growth. Olin updated guidance on 10 July 2019 to reflect expectations management-adjusted EBITDA of $200-210 in the second quarter of 2019 and with the benefit of improved market conditions in the second half of 2019, full year 2019 EBITDA of $1,075-1,175 billion.

However, Moody's no longer expects that the company will reduce debt meaningfully in the near term despite some free cash flow generation in 2019. The proposed financing will lock in the ability to take out expensive debt with much lower cost alternatives, but will also term out borrowings under a securitization program and eliminate the remaining pre-payable debt in the capital structure ahead of the October 2020 call date on $1.2 billion of debt put in place to fund the Dow acquisition in 2015. Olin also has an upcoming $450-$500 million acquisition-related payment to Dow in 2020. Therefore, Moody's does not expect that the company will have sufficient free cash flow left over to reduce debt meaningfully until 2021.

The stable outlook assumes that Olin will maintain good liquidity to support operations, including a good projected cushion of compliance under financial maintenance covenants, and ability to remain in compliance in a cyclical downturn. Moody's could upgrade the rating with adjusted financial leverage sustained below 3 times, retained cash flow-to-debt sustained above 20% (RCF/Debt), and clear articulation of the importance of achieving and sustaining investment-grade ratings. Moody's could downgrade the rating with adjusted financial leverage above 4 times (Debt/EBITDA), retained cash flow-to-debt below 12% (RCF/Debt), failure to generate positive free cash flow in the current cyclical stage for the chlor-alkali industry (excluding large one-time payments), or a substantive deterioration in liquidity, including a narrowing cushion of compliance under financial maintenance covenants.

Olin Corporation is a Clayton, Missouri-based manufacturer and distributor of commodity chemicals, and a manufacturer of small caliber, firearm ammunition. The company operates through three main segments, (1) Chlor Alkali Products and Vinyls whose primary products include chlorine and caustic soda, hydrochloric acid, vinyl chloride, sodium hypochlorite (bleach), and potassium hydroxide; (2) Epoxy, which produces and sells a full range of epoxy materials, including allyl chloride, epichlorohydrin, liquid epoxy resins and downstream products such as converted epoxy resins and additives; and (3) and Winchester, whose primary focus is the manufacture and sale of small caliber, firearm sporting and military ammunition. In 2015, Olin acquired Dow's U.S. chlor-alkali, global epoxy and global chlorinated organics businesses (Dow's chlor-alkali business), significantly expanding the company's size and diversity.

The principal methodology used in these ratings was Chemical Industry published in March 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Benjamin Nelson
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Glenn B. Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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